Treasury yields fall as data keeps Fed bets alive: Markets close

(Bloomberg) — Treasury yields fell as a cooling in another key measure of inflation strengthened the case for the Federal Reserve to cut rates this year.

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Bonds climbed along the US curve, with 10-year yields breaking below 4.3% and heading for their lowest level since March. Fed exchanges continued to show bets on almost 50 basis points of easing in 2024, which would equate to roughly two rate cuts. A rally in stocks faded as rising political risk in France pushed the premium on the nation’s 10-year bond to its biggest level since 2017 over safer German counterparts.

The producer price index unexpectedly fell by the most in seven months, adding to evidence that inflationary pressures are easing. Several categories used to calculate the Fed’s preferred inflation measure, the personal consumption expenditures price index, were softer in May than a month earlier.

The latest data in hand opens the door slightly wider for the Fed to start cutting interest rates later this year, said Bill Adams at Comerica Bank, which forecasts Fed cuts in September and December.

10-year Treasury yields fell six basis points to 4.25%. The S&P 500 hovered around 5,420. This is even though the technology of its most influential group surpassed it. The Stoxx Europe 600 index fell over 1%. France CAC 40 Index decreased by 2%.

Separate data showed jobless claims jumped to their highest level in nine months, pointing to moderation in the labor market even though those weekly readings tend to be highly volatile.

The producer price index unexpectedly fell by the most in seven months, adding to evidence that inflationary pressures are easing. Several categories used to calculate the Fed’s preferred inflation measure, the personal consumption expenditures price index, were softer in May than a month earlier.

The latest data in hand opens the door a little wider for the Fed to begin cutting interest rates later this year, said Bill Adams at Comerica Bank, which forecasts Fed cuts in September and December.

Separate data showed jobless claims jumped to their highest level in nine months, pointing to moderation in the labor market even though those weekly readings tend to be highly volatile.

The PPI report comes after a soft reading on consumer prices that offered some reassurance that progress toward the Fed’s 2% inflation target has resumed. Fed Chairman Jerome Powell said Wednesday that officials welcomed the latest numbers, adding that he hopes for more such reports.

US officials made just one interest rate cut this year and forecast more cuts for 2025, reinforcing calls from policymakers to keep borrowing costs high for longer to suppress inflation. The Fed’s dot plot showed four policymakers saw no cuts this year, while seven predicted just one cut and eight expected two cuts.

It’s still only a month away, and the takeaway from the Fed’s June meeting stands: It will take a much more sustained tapering over the next few months for the Fed to move on rates, said Krishna Guha at Evercore. But this is exactly the kind of data Powell needs to steer a cautious FOMC to two cuts.

The Fed’s favored inflation gauge is set for the smallest advance since November, following two better-than-expected prices reports this week. Some analysts expect the so-called core PCE gauge, due later this month, to advance just 0.1% in May. Such a print would help strengthen the case for two interest rate cuts this year.

Corporate Highlights:

  • Tesla Inc. Shares jumped after Elon Musk said shareholders voted overwhelmingly in favor of re-approving his compensation package and moving the company’s state of incorporation to Texas.

  • Broadcom Inc. rallied after delivering strong results and an upbeat forecast, buoyed by strong demand for artificial intelligence products. The company also announced a 10-for-1 stock split, effective July 15.

This week’s highlights:

  • The Bank of Japan’s monetary policy decision on Friday

  • Chicago Fed President Austin Goolsbee speaks on Friday

  • Consumer sentiment at the American University of Michigan, Friday

Some of the main movements in the markets:

INVENTORY

  • The S&P 500 was little changed as of 11:48 a.m. New York time

  • Nasdaq 100 rose 0.5%

  • Dow Jones Industrial Average fell 0.6%

  • Stoxx Europe 600 fell 1.3%

  • MSCI World Index fell by 0.5%

currencies

  • The Bloomberg Dollar Spot Index is little changed

  • The euro fell 0.5% to $1.0756

  • The British pound fell 0.3% to $1.2761

  • The Japanese yen was little changed at 156.79 per dollar

Cryptocurrencies

  • Bitcoin fell 2.3% to $66,503.51

  • Ether fell 3.2% to $3,441.79

BONDS

  • The 10-year Treasury yield fell six basis points to 4.25%

  • Germany’s 10-year yield fell six basis points to 2.47%

  • Britain’s 10-year yield was little changed at 4.12%

wares

  • West Texas Intermediate crude fell 0.6% to $78.03 a barrel

  • Spot gold fell 1% to $2,302.25 an ounce

This story was produced with the help of Bloomberg Automation.

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